Reuters logo
9 years ago
Tesoro says US West refinery margins to weaken in '08
March 12, 2008 / 2:51 AM / 9 years ago

Tesoro says US West refinery margins to weaken in '08

3 Min Read

SAN DIEGO, March 11 (Reuters) - U.S. West Coast refining margins in 2008 are expected to fall far below 2007's record levels and be down slightly from 2006, the chief economist for oil refiner Tesoro Corp (TSO.N) said at an industry conference on Tuesday.

"Our outlook for the year is zero growth (in gasoline demand)," said Lynn Westfall, chief economist for Tesoro. "So that would say you're going to have to take some off (refinery margins) of 2006."

Westfall said he does not compare this year's margins to 2007 when they hit record highs.

In 2006, U.S. West Coast oil refining margins averaged $23 a barrel, according to bank Credit Suisse.

Current West Coast refining margins show a continued decline, slipping $1.78 to $18.47 a barrel, Credit Suisse said on Monday.

Tesoro's operations are focused in the western United States with refineries in Alaska, California, Hawaii, North Dakota, Utah and Washington state.

Refining margins are the difference between the price for crude oil and the price for the products sold by refiners.

West Coast refining margins will be down as the U.S. sees the highest gasoline supplies since the mid-1990s along with rising prices, Westfall said.

A key figure to watch this year for the direction of refining margins is the U.S. unemployment rate, which will impact gasoline demand, he said.

If it approaches or tops 7 percent, gasoline demand will drop and so refinery profits will be less, Westfall said in an interview on the sidelines of the National Petrochemical and Refiners Association annual meeting.

Unemployment in February was approaching 5 percent, the U.S. Labor Department said on Friday.

He said the unemployment rate is tied closely with gasoline demand because most driving is done to and from work.

The price of gasoline on a national average hit a record high on Tuesday near $3.23 per gallon, up 27 percent from a year ago, motor club AAA reported. But record-high crude oil prices -- near $110 a barrel on Tuesday for U.S. oil futures -- will help keep refinery margins down, said Westfall.

And crude oil prices will remain high as long as investors use oil and other commodities as a hedge against the weak dollar, he said.

Crude and refined products prices are disconnected from fudamental supply-and-demand data, Westfall said, echoing comments from other refining executives.

He predicted a fall for crude prices and its products, but he said he couldn't guess when such a fall would occur. Westfall expects price will fall quickly as investors switch money to other sectors.

But crude oil is likely to remain above $80 per barrel for the next couple of years.

Tesoro in its latest quarterly earnings report showed a net loss of $40 million, or 29 cents per share, compared with net income of $158 million, or $1.14 a share, in the year-earlier period. (Additional reporting by Erwin Seba in Houston; Editing by Michael Urquhart)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below